Posted on: 23 April 2018 by Kimberley Young
With the European Regions Airline Association (ERA) suggesting earlier this year that Brexit is an issue that affects all its member airlines directly or indirectly, the topic was unsurprisingly a key feature of the Regional Airlines Conference 2018, hosted by the association in Vienna.
Panellists agreed that the exit from the European Union was one of the most significant challenges facing the regional airline industry at present, and concurred that clarity was necessary to move forward and plan effectively for the future.
The impact on regional airlines
On day one of the conference Warner Rootliep, managing director of KLM Cityhopper, reflected on his experience of Brexit in the UK in his previous role (general manager UK and Ireland for AirFrance KLM) and said of the period: “Our first and immediate concern was what will happen with the traffic demand.”
“I think when we looked at our load factors on the UK market, they’ve not really taken a big hit – the yields have because of the weakening of the pound,” he continued. “I can say that is the biggest immediate impact we felt but of course it makes it more attractive for people to come to the UK. It was a bit of a balancing act but overall the profitability did take a bit of a hit in the UK.”
Weighing the potential for opportunities under the exit process, Rootliep said: “I think in the short-term the losses are bigger than the opportunities.”
He went on to say, “In the short-term from KLM Cityhopper’s perspective, roughly 20% of our network is into the UK and that’s at risk. I don’t have an immediate solution for putting a percentage of those flights somewhere else.”
The first session on day two of the conference focused specifically on the break from the EU, chaired by Graham Baguley, operations director, Titan Airways and chair of ERA’s Industry Affairs Group.
Martin Isler, executive vice-president airline and accountable manager, Luxair Luxembourg Airlines, discussed the threats of Brexit on certain routes: “The London City route from Luxembourg is our most important, most profitable, we fly seven times a day, so we have some exposure [to Brexit] and don’t know what will happen,” He explained that since 2017 the airline saw 13% less traffic and have been moving some traffic, putting more capacity into Dublin for example in response to a shift towards that area.
Martin Isler, executive VP airline and accountable manager, Luxair Luxembourg Airlines says there are 2 sides of Brexit uncertainty- commercial and regulatory – and says he’s more concerned about the regulatory uncertainty and the airline’s exposure to it #rac18
— LARA (@news_LARA) April 19, 2018
An economic insight
Chris Tarry, founder CTAIRA, illuminated the economic impacts and future for Brexit, stating that it comes down to an airline specific analysis: “We can talk about how the industry is making $36 billion in profit but for many airlines the world is no different from how it was last year or the year before, and the challenges remain – to do a little better or a little less worse than the previous year.”
“The way I rationalise Brexit is that there’s an economic consequence by definition and its similar to a downturn or a slowdown. We’re not going to go into recession because of Brexit,” he said.
Tarry explained that it almost must be taken route-by-route to determine which business routes will be affected and why. He pointed out that while the break from the EU was seen as a great opportunity for UK businesses to export, “I think the J-curve effect period of benefit is over and if we look at business, UK outbound business travel for the last three months of 2017 we see numbers down by 14%.”
He suggested we are seeing a decline in inbound travel, leisure travel and also business travel, “But from an economic perspective and in terms of the system, if we look at growth across the airports in the UK last year to and from the EU, then EU traffic grew in total about 7.5% for all UK airports. Within the London area that growth was about 4.6 or 4.8%, outside London it was just over 10%.” When put in context, he said total international growth for the UK is about 6.3% and the domestic market 1.7%.
Tarry went on to suggest that though in the future we may “pay a higher price for less benefit than what we had as a member of the EU in economic terms,” there will be broadly a continuation of what we have at the moment, a view echoed by other panellists in this session.